Investors face yet another year of uncertainty in 2012, but this time around, they don't appear as willing to wait to see how things will play out.
A debt crisis threatens to tear apart the eurozone, China's economy is slowing, and the Middle East remains a powder keg in a burning warehouse.
"Currently, the world economy stands at a very dangerous juncture," International Monetary Fund chief Christine Lagarde warned last week.
That said, the U.S. economy is ending the year on an upswing, with an unexpected spike in housing starts, falling claims for unemployment benefits and robust holiday retail sales.
Investors, however, have continued to flee riskier assets for safe havens.
U.S. stock funds saw investors pull out $12.5 billion in November and $74.5 billion for the first 11 months, according to Morningstar.
Taxable bond funds, by contrast, saw $10.1 billion flow in last month, and money market mutual funds added $46.1 billion.
"Even if the politicians contrive to keep the lights on in Europe, . . . the threat of further shocks to the financial system will be at the forefront of investors' minds," said Andrew Kirton, global chief investment officer for Mercer.
That flight to safety continues despite abysmally low yields. Money market funds pay next to nothing, and even five-year certificates of deposits are averaging 1.2 percent interest.
Last week, investors were willing to pay, not receive, 0.88 percent to hold five-year Treasury Inflation Protected Securities.
"The only game in town is the large-cap, multinational, dividend-paying stocks," said Fred Taylor, president of Northstar Investment Advisors in Denver. "You don't have any alternatives for getting cash for your investments."
Taylor recommends looking at nonfinancial companies with a dividend yield above 3 percent, but more importantly, ones that have consistently raised dividends 7 percent or more a year.
Companies that fit that bill are familiar names — Intel, Phillip Morris, Microsoft and Johnson & Johnson.
The blue-chip dividend approach has worked well the past three years, Taylor said, and many such companies pay more to their shareholders than their bondholders.
Some contrarian money managers suggest investors have priced in too dark a scenario for 2012, which could set the stage for a strong rally in stocks, given all the money parked on the sidelines.
"People are so negative and so much money has been pulled out of mutual funds, the market is going higher in 2012," predicted Joe Pecoraro Jr., president of PVG Asset Management in Denver.
Pecoraro expects stocks will remain volatile, but less so than this year. With balance sheets and earnings solid at most corporations, any easing of sovereign debt worries could unleash a rally.
"You need to buy companies that can generate sales and earnings growth in excess of the overall economy," he said, pointing to 3-D manufacturing and cloud computing as examples of industries where that is happening.
One fallout from the euro crisis has been a stronger U.S. dollar, which has pushed down commodity prices, including gold.
Commodity prices should move mostly sideways around current levels in 2012, forecasted IHS chief economist Nariman Behravesh.
If China's economy hits the brakes harder than expected, then commodity prices will fall across the board. If tensions over Iran's nuclear program spark a deeper conflict, then count on oil prices rising.
Gold has proved a profitable refuge following the financial crisis in 2008, but its outlook is less certain.
After peaking above $1,900 an ounce in August, gold has fallen sharply in December and is closer to $1,600.
A stronger U.S. dollar and year-end selling to lock in profits on "paper" gold assets like exchange-traded funds are driving the decline, said Edmund Moy, former director of the U.S. Mint.
"There are no guaranteed safe havens in today's volatile investment markets. But you can reduce your risk by diversifying into gold," Moy said, noting that demand for physical gold remains strong.
Still, others see precious metals as the latest bubble to burst and warn investors to stay away.
"I think gold and silver shares and bullion will lose at least 20 percent in the coming weeks and months, probably more," predicted Sam Jones, a money manager with Denver-based All Season Financial Advisors.
No outlook would be complete without mentioning the rising number of calls for investors to prepare for tough times in 2012.
New York University professor Noriel Roubini, who correctly called the 2008 credit crisis, said officials are running out of options to deal with large debt burdens and the trade imbalances behind them.
"Papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings," he warned.
And economist Harry Dent, author of "The Great Crash Ahead," predicts the current "Santa Claus" stock rally, which could push indices up 10 percent, will turn into a lump of coal that signals the start of a seven-year global downturn.
He recommends investors sell stocks and commodities in any rally and park funds into short-term government bonds, something many are already doing.
denverpost.com
A debt crisis threatens to tear apart the eurozone, China's economy is slowing, and the Middle East remains a powder keg in a burning warehouse.
"Currently, the world economy stands at a very dangerous juncture," International Monetary Fund chief Christine Lagarde warned last week.
That said, the U.S. economy is ending the year on an upswing, with an unexpected spike in housing starts, falling claims for unemployment benefits and robust holiday retail sales.
Investors, however, have continued to flee riskier assets for safe havens.
U.S. stock funds saw investors pull out $12.5 billion in November and $74.5 billion for the first 11 months, according to Morningstar.
Taxable bond funds, by contrast, saw $10.1 billion flow in last month, and money market mutual funds added $46.1 billion.
"Even if the politicians contrive to keep the lights on in Europe, . . . the threat of further shocks to the financial system will be at the forefront of investors' minds," said Andrew Kirton, global chief investment officer for Mercer.
That flight to safety continues despite abysmally low yields. Money market funds pay next to nothing, and even five-year certificates of deposits are averaging 1.2 percent interest.
Last week, investors were willing to pay, not receive, 0.88 percent to hold five-year Treasury Inflation Protected Securities.
"The only game in town is the large-cap, multinational, dividend-paying stocks," said Fred Taylor, president of Northstar Investment Advisors in Denver. "You don't have any alternatives for getting cash for your investments."
Taylor recommends looking at nonfinancial companies with a dividend yield above 3 percent, but more importantly, ones that have consistently raised dividends 7 percent or more a year.
Companies that fit that bill are familiar names — Intel, Phillip Morris, Microsoft and Johnson & Johnson.
The blue-chip dividend approach has worked well the past three years, Taylor said, and many such companies pay more to their shareholders than their bondholders.
Some contrarian money managers suggest investors have priced in too dark a scenario for 2012, which could set the stage for a strong rally in stocks, given all the money parked on the sidelines.
"People are so negative and so much money has been pulled out of mutual funds, the market is going higher in 2012," predicted Joe Pecoraro Jr., president of PVG Asset Management in Denver.
Pecoraro expects stocks will remain volatile, but less so than this year. With balance sheets and earnings solid at most corporations, any easing of sovereign debt worries could unleash a rally.
"You need to buy companies that can generate sales and earnings growth in excess of the overall economy," he said, pointing to 3-D manufacturing and cloud computing as examples of industries where that is happening.
One fallout from the euro crisis has been a stronger U.S. dollar, which has pushed down commodity prices, including gold.
Commodity prices should move mostly sideways around current levels in 2012, forecasted IHS chief economist Nariman Behravesh.
If China's economy hits the brakes harder than expected, then commodity prices will fall across the board. If tensions over Iran's nuclear program spark a deeper conflict, then count on oil prices rising.
Gold has proved a profitable refuge following the financial crisis in 2008, but its outlook is less certain.
After peaking above $1,900 an ounce in August, gold has fallen sharply in December and is closer to $1,600.
A stronger U.S. dollar and year-end selling to lock in profits on "paper" gold assets like exchange-traded funds are driving the decline, said Edmund Moy, former director of the U.S. Mint.
"There are no guaranteed safe havens in today's volatile investment markets. But you can reduce your risk by diversifying into gold," Moy said, noting that demand for physical gold remains strong.
Still, others see precious metals as the latest bubble to burst and warn investors to stay away.
"I think gold and silver shares and bullion will lose at least 20 percent in the coming weeks and months, probably more," predicted Sam Jones, a money manager with Denver-based All Season Financial Advisors.
No outlook would be complete without mentioning the rising number of calls for investors to prepare for tough times in 2012.
New York University professor Noriel Roubini, who correctly called the 2008 credit crisis, said officials are running out of options to deal with large debt burdens and the trade imbalances behind them.
"Papering over solvency problems with financing and liquidity may eventually give way to painful and possibly disorderly restructurings," he warned.
And economist Harry Dent, author of "The Great Crash Ahead," predicts the current "Santa Claus" stock rally, which could push indices up 10 percent, will turn into a lump of coal that signals the start of a seven-year global downturn.
He recommends investors sell stocks and commodities in any rally and park funds into short-term government bonds, something many are already doing.
denverpost.com
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